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Bond mired in data, Fed
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July 28, 1999: 9:24 a.m. ET
Weak durable figures fail to inspire much buying as Greenspan looms
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NEW YORK (CNNfn) - News of a slowdown in the U.S. manufacturing sector gave Treasury bonds tentative upward direction Wednesday, but the gains were minimal between an unsteady dollar and nerves ahead of a repeat performance from Alan Greenspan.
Shortly before 9 a.m. ET, the bellwether 30-year Treasury bond edged up 1/32 of a point in price to 89-17/32. The yield, which travels in the opposite direction, remained at 6.01 percent from Tuesday's closing level.
Traders said the Commerce Department's 8:30 a.m. ET release of June durable goods orders provided the bond market with much-needed momentum after early trading proved inconclusive. Durable goods orders edged up only 0.3 percent in the month, slowing significantly from May's revised 0.8 percent growth rate and investors' expectations of a 1 percent increase.
Even more bullish for bonds, which are highly susceptible to signs of growth or contraction in the U.S. economy, durable orders actually fell 0.4 percent when the volatile transportation sector was factored out of the statistics.
The figures provide investors and economists alike with a broad gauge of the manufacturing sector's health. In recent years, manufacturing has not taken part in the U.S. economy's unprecedented growth spurt, acting instead as a brake on the overall expansion.
This, in turn, has often been a source of comfort to the bond market, where traders fear that unbridled economic growth will reawaken dormant inflationary forces. Inflation is one of the greatest enemies of bonds and other fixed-income securities, which see the static returns they offer investors dwindle in real terms as the value of the dollar erodes.
Greenspan looms again
Moreover, the Federal Reserve has made it clear that it will act to raise U.S. interest rates at the first sign of resurgent inflation. Rising rates are also detrimental to bonds and other securities by making them less competitive in relation to savings accounts, certificates of deposit or even cash.
As if to underline investors' concerns over upcoming Fed rate decisions, Fed Chairman Alan Greenspan -- the primary arbiter of U.S. monetary policy -- will repeat his semi-annual Humphrey-Hawkins testimony later Wednesday.
Last week, the first reading of Greenspan's remarks on the state of the U.S. economy unhinged financial markets and put the fear of the Fed back into investors' hearts, knocking the long bond down nearly a full point and putting Wall Street on the defensive.
In the Fed chief's repeat performance, investors will listen especially closely to the question-and-answer portion, which may contain new information or allow Greenspan to otherwise clarify his unexpectedly rate-hawkish stance from last week.
Dollar sails uneven waters
With Greenspan, unsteady currency markets kept the bond market on edge. The dollar has held Treasury trading hostage in recent sessions, a pattern that continued Wednesday as the currency navigated an uncertain course between a sagging euro and a seemingly irrepressible yen.
In early U.S. trading, the dollar had slipped to 116.03 yen from its previous close of 116.45, but edged up to $1.0606 on the euro.
Weak German manufacturing data weighed on the euro, traders said. The factory association VDMA said June orders fell 18 percent, a stark contrast even to the sagging U.S. durable statistics.
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